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Re-negotiating rent to match the sagging market

By 26 May 2014 14

Figures released this week by SQM Research show vacancy rates in Canberra climbed to 2.5 per cent in April, compared to 2.3 per cent nationally, according to the ABC.

There are more than 500 additional rental properties vacant compared to the same time last year in the ACT.

Accompanying the vacancy rates rise is a drop in rental prices, which have fallen by 8.5 per cent in the last 12 months.

As much as I feel for the investors, as a renter I am starting to wonder if I’m paying over the odds – particularly given an increase in rent 12 months ago. Has anyone had any experience in re-negotiating rent down once in a contract – or even between renewals on the same property?

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14 Responses to Re-negotiating rent to match the sagging market
#1
zllauh10:22 am, 26 May 14

Well, the owners would not prefer to reduce the rent. Check out the lease period you have and if the need arises keep an eye for new rental properties.

#2
VYBerlinaV8_is_back10:45 am, 26 May 14

Renegotiate when your lease is up. Unless you’ve been a total k%$b most landlords would be happy to talk. Bear in mind that there’s more to negotiating that the price of rent. You could ask for a new dishwasher, airconditioning, landscape supplies, etc.

I’ll certainly be working with my long term tenants to ensure they stay on.

#3
arescarti4212:06 pm, 26 May 14

I don’t believe you can renegotiate your rent within the lease period, it’s a fairly binding contract that says you’ll pay x dollars for a certain period of time.

Once that’s up though, you should definitely see if you can get your rent reduced. Prices have been falling for ages, so you’re probably paying well above market value if you had an increase 12 months ago.

I’d say the main thing to do is find out what similar (or better properties) are renting for, to give you a feel for what the market value for your place is currently. That evidence will also help you build up a case to take to your landlord.

It probably also helps to think about it from your landlord’s perspective. If you’re a good tenant and you decide to leave because the rent is too high, they have to go to all the hassle and substantial cost of finding a new tenant, plus the risk that the new tenant might be crap. At the same time, they know that moving house is going to be costly and a hassle for you, so they’ll be trying to figure out the maximum they can continue to charge you without having you leave.

#4
VYBerlinaV8_is_back1:59 pm, 26 May 14

arescarti42 said :

I don’t believe you can renegotiate your rent within the lease period, it’s a fairly binding contract that says you’ll pay x dollars for a certain period of time.

Once that’s up though, you should definitely see if you can get your rent reduced. Prices have been falling for ages, so you’re probably paying well above market value if you had an increase 12 months ago.

I’d say the main thing to do is find out what similar (or better properties) are renting for, to give you a feel for what the market value for your place is currently. That evidence will also help you build up a case to take to your landlord.

It probably also helps to think about it from your landlord’s perspective. If you’re a good tenant and you decide to leave because the rent is too high, they have to go to all the hassle and substantial cost of finding a new tenant, plus the risk that the new tenant might be crap. At the same time, they know that moving house is going to be costly and a hassle for you, so they’ll be trying to figure out the maximum they can continue to charge you without having you leave.

Good advice this. The idea is for both parties to come to an arrangement that suits everyone. I’ve done it before and it worked well.

#5
Sandman10:29 pm, 26 May 14

I know a few people who’ve negotiated a drop in their current rent, anywhere up to about $80 a week for a house. There’s a lot of real good places out there at (relatively) bargain prices at the moment. It’s not really in the landlords interest to have a good tenant leave, and risk having the place empty for several months or more. The chances of them then getting what you’re currently paying is pretty slim.
Talk to them, make sure they know you’re prepared to walk. The costs of moving will be quickly offset by the savings and you can potentially get a bigger/better place at less cost.

#6
taninaus7:08 am, 27 May 14

it depends what type of property you are in as to how successful or likely a renegotiation is – the usual thing with statistics is that they are blunt instruments lumping everything together. but some markets will be weaker than others due to supply. A 1br in the burbs in gungahlin is oversupplied, but I am still hearing from real estate agents that good family sized homes are in demand. AllHomes and Real Estate.com are your friend in seeing what the competition is like.

#7
JimCharles7:22 am, 27 May 14

Next door neighbours (students) tried to change a name on their rental, and the landlord agreed only if they’d sign another 12 month lease at the same price.
They refused, landlord said they would have to vacate..property was then empty for 8 months, landlord had to repaint the house, change the carpets, carry out landscaping, dropped the price $60 a week before he got new tenants in. Cost him about $25000 I reckon.

On the bright side, it does force an increase in quality of available housing stock, I remember walking round some rentals in 2012 that you wouldn’t keep your dog in…and these properties were renting easily then. I’m willing to bet that none of them are in the same state now.

#8
Az9:34 am, 27 May 14

It’s not just renters who should be discounting. You’d be silly to buy a house without seriously underbidding on the asking price.

Not the kind of advice you’ll find in any commercial media dependent on real estate advertising revenue. (ie all of them.) Which begs the question, who do they work for, readers or sponsors?

#9
Maya12310:03 am, 27 May 14

JimCharles said :

Next door neighbours (students) tried to change a name on their rental, and the landlord agreed only if they’d sign another 12 month lease at the same price.
They refused, landlord said they would have to vacate..property was then empty for 8 months, landlord had to repaint the house, change the carpets, carry out landscaping, dropped the price $60 a week before he got new tenants in. Cost him about $25000 I reckon.

On the bright side, it does force an increase in quality of available housing stock, I remember walking round some rentals in 2012 that you wouldn’t keep your dog in…and these properties were renting easily then. I’m willing to bet that none of them are in the same state now.

Some landlords are fools, and hence lousy business people. I knew a suburban shop that was empty for years because the landlord wouldn’t drop the rent. I was told there had been offers from potential tenants, but none would pay the asking price. So, that landlord must have lost a lot of money.
But tenants can be silly too. I used to have a rental property, renting for $100 – $150 cheaper than other rentals in the area (an inner suburb). I planned to redevelop the block later and so I didn’t want to spend too much on the property, hence it was shabby. The paint job inside was tidy and fine, but outside the house needed a paint badly. Everything else such as carpets were sound though. But considering the cheap rent (and I doubt there was a cheaper three bedroom house anywhere in Canberra, plus this was in an inner suburb), it was surprisingly difficult to rent, even when rents were high and there was a shortage of rentals. I couldn’t understand it, as in the past I too had been a renter, and I rented far worse. I would rather have saved the $100-$150 a week and lived in a shabbier property, than get a fancier property. If you can save money who needs an ensuite, dishwasher, etc. The stove worked and was replaced twice, the hot water system was new, as was the carpet at the beginning of the rent, there was a lock-up garage. But from my experience I felt that most people weren’t like me, and instead were willing to pay more to have an ensuite, dishwasher, air-conditioning, etc. Those people are still probably renting though, while I am not.
The trouble is if the housing stock is all improved, come times of high rents it will be even more difficult to find a reasonably priced property. There will be no VWs left to rent, only Mercedes.

#10
VYBerlinaV8_is_back12:29 pm, 27 May 14

Maya123 said :

Some landlords are fools, and hence lousy business people.

Of course they are. In fact, most of them don’t really know what they’re doing. Around 78% of property investors in Australia own only one investment property, and another (approximately) 20% own only two.

It’s the 2% that own more than two that know what they’re doing, IMO.

#11
LSWCHP7:35 pm, 27 May 14

VYBerlinaV8_is_back said :

Maya123 said :

Some landlords are fools, and hence lousy business people.

Of course they are. In fact, most of them don’t really know what they’re doing. Around 78% of property investors in Australia own only one investment property, and another (approximately) 20% own only two.

It’s the 2% that own more than two that know what they’re doing, IMO.

I know a couple who own 6 properties in Canberra and elsewhere, and they’re desperate. “We’re being smashed” is the common theme as rents go down and capital gains fail to eventuate. They’re in the process of unloading one, and they’re thrilled about it.

#12
milkman7:41 pm, 27 May 14

LSWCHP said :

VYBerlinaV8_is_back said :

Maya123 said :

Some landlords are fools, and hence lousy business people.

Of course they are. In fact, most of them don’t really know what they’re doing. Around 78% of property investors in Australia own only one investment property, and another (approximately) 20% own only two.

It’s the 2% that own more than two that know what they’re doing, IMO.

I know a couple who own 6 properties in Canberra and elsewhere, and they’re desperate. “We’re being smashed” is the common theme as rents go down and capital gains fail to eventuate. They’re in the process of unloading one, and they’re thrilled about it.

Overleveraging is fine on the way up, but when things sag you can get into a lot of trouble.

#13
justsomeaussie5:42 am, 28 May 14

People saw this coming…

http://the-riotact.com/housing-bubble-what-housing-bubble-the-canberras-inner-south-from-2005-2013/123187

But real estate agents and the Canberra media don’t like to report on real estate prices falling (advertising money).

Partially as a result of Self Managed Super Funds there is a lot pain in Canberra at the moment. Pain that can’t go away. Investors just need to ask themselves where the new people are coming from?

http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/3412.0Chapter42011-12%20and%202012-13

It’s not government jobs, it’s not manufacturing, it’s not business. So all these large developments still being built in Canberra can only lower prices. Developers are holding significant amounts of properties off the market so they don’t flood it.

http://www.sqmresearch.com.au/graph_vacancy.php?region=act%3A%3ACanberra&type=c&t=1

(Don’t forget to scroll the chart all the way to the right to see the pain)

In the short to medium term it’s going to be a renters market as more and more distressed investors dump their rents to try to recoup their losses.

#14
tim_c3:42 pm, 28 May 14

I recently offered to reduce the rent the tenant is paying on our place – there are a significant number of vacant apartments in the same development – all currently being advertised at lower prices than he’s paying me.
I’d rather offer him a better deal than have him move downstairs to save $30 a week because if he does that, I’ll be getting nothing until I can find another tenant, which won’t be easy because I’ll be competing with quite a few other landlords to find a tenant.
Arm yourself with ads of similar properties renting cheaper, and make it look like you’ll move (even though that can be a hassle to change your address), most landlords would negotiate in the current market (and you have to ask yourself if you really want to rent from the type that won’t!)

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